Bucharest University, Behavioral Economics, 2nd year The Origin of Wealth: The Radical Remaking of Economics and What it means for Business and… [628275]

Popina Sebastian Marius
Bucharest University, Behavioral Economics, 2nd year

The Origin of Wealth: The Radical Remaking of Economics and What it
means for Business and Society

The book is written at a time when the point of evolution of economy was highly critical,
oscillating between a best and worst outcome. Its impact would have been best in the context of
knowledge gathering and reaching a new checkpoint in the development of the economic fields.
Also, as this development takes years, future generations will also feel the outcomes of those times.
The point of the book is the similarities between biology and economics, both from a scientific
and evolutionary point of view. Stating this, similarities are assumed between the histories of the
two fields, under the assumption of growing under t he government of the same laws.
From the beginning, the author introduces the proposal of analyzing, in a scientific and organized
context with scientists belonging to a mix of fields, the parallelism of biology and economics. The
participants were 10 economists, a computer scientist, a biolo gist and 10 physicists. The
economical field was presented as ‘’throwback to another era’’, being compared with a ‘’blast
from the past’’ from a mathematical point of view. There were, still, issues for the physicists,
especially for the perfect rationalit y impact upon the main thesis. That is because reality is highly
different from perfect rationality, hence the economists need to adapt their theory according to real
cases, not best/proper case scenarios.
The author brings into attention arguments of cons idering the economic rationality locked in ideas
and theories based on the physics of Leon Walras related to the theory of marginality in the market
context, overthrowing newer sights of economics. That was when the 1st law of thermodynamics
(energy conser vation) was known. The definition of equilibrium is related to expressing this law.
Entropy (randomness) constant increase is the second law, implying that death is the only solution
to the equation of equilibrium. Consequently, economy is rationally an eq uilibrium system that is
closed, oxymoronically to physics.
Complex Economics, the term brought into discussion by the author, on the other hand, states that
the biological laws of evolution also apply to economy. Algorithmically, evolution finds proper
designs in optimal places of a huge space of design. Basically, the characteristic of reflexivity
defines the concept: self -designing. The main concepts are the following:

Popina Sebastian Marius
Bucharest University, Behavioral Economics, 2nd year

– Population Randomness
– Maximization in decisions
– Replication of best scenarios
Evolu tion is thought to be very slow, not having a planned economy and strategically setting the
roles of the economic agents. Properly, the agents could maximize the performance of the
maximization process, improving the evolution rate. As in any evolutionary case, improvement
comes from the replication of best case scenarios (deducing that induction brings more benefits)
and from heuristically bringing knowledge (deduction).
Considering all the above, Physical and Social Technologies (PT and ST) are the main c onstitutors
of a business plan (again, maximizing the decisions and replicating the cases).
The physical side is related to matter, information and energy management (transforming,
profiting, exchanging), seeking specific goals. Economically, the aim is t he profit, assets, and the
resourceful possibility of adapting to change. Let’s take for instance the evolution of PT: induction
and deduction match each other, mixing past experience learnings with current studies results and
comparisons, all these in an apparently limitless space of discovery. Historically, since science
clarifies and organizes knowledge, the current information combines faster with the laws and
theories.
Socially, the Complex Economics is defining social organization in order to better benefit from
each other and the community. Just like knowing Game Theory and acting rationally, adapting to
context at the same time, people are expected to act properly in the non -zero-sum social games,
which are preferred in the decision making processes . Evolution comes from games where there
is a winning score higher than a losing score, hence exploiting the unlimited resources. A way to
avoid zero -sum games is to add an auxiliary value (not necessarily the same for all players) to each
of them, with th e average of all players’ extra value greater than zero (they can be positive or
negative). Negativity might come also as a response of the impact which your playing strategy has
on society. It would be a zero -sum game, but with bonuses and sanctions for c ooperating or not
overall.
Talking about economic agents and business, the resources need to be turned into profit for the
rational purpose of self -benefiting. Let’s break the business plan in ‘’modules’’. This is a concept

Popina Sebastian Marius
Bucharest University, Behavioral Economics, 2nd year

that could lead to the differ ential selection. Here one breaks the broad evolutionary process, and
logically makes decisions, not leaving space for deduction. Alternatively, the competition decides
what it need to change in the market (add, remove, modify), or a supreme economical dec ision
power. Subsequently, using deduction, the economic agent are placing fit designs in optimal
spaces, where better positioning
Evolution can be considered from many point of views: coevolution of the physical, social, and
business processes: they defi ne basis for change management and wealth growth. Pattern creation
is based on past experience and analysis: from past time to current time, not knowing the result of
the analysis. But after it is known, a new equation can be done with the current time and the
analysis, but not knowing the future time, hence the possibility of forecasting. Evolutionary, this
is an extra step whose main key performance indicator is accuracy.
Science tries to find laws that apply both from a macro perspective and detailed one , but simply
(as in the simplest and correct way) defining the reality. Economic Rationality fails to do this.
Limited by reality, the complexity of rational decision making process is too much for our brains;
instead we depend on knowledge (past experienc e, examples, ways to approach that information),
creating patterns. Otherwise, we would take into account effects (too many of them) that represent
the impact of simple decisions. Driving to job or taking public transportation (or bike, walking)
wouldn’t b e just a matter of optimizing resources on short term, but long term calculations and
amortization should be done on items like shoes, life-expectancy of headphone relative to their
price, in comparison to car speakers, only in the subjective context when listening to music is a
preference with a positive outcome in front of silence or city noise.
Patterns are the best combination of heuristics and algorithms: one finds a result following logical
steps or by mistake (change in the logical tree of actions), it proves great outcomes, then it is
replicated, becoming a pattern. Historically, patterns have basis from both sides. Complex
Economics prefers to define this induction process as rationality, leaving ways for adaptation in
its main unit of development: the pattern.
Equilibrium has no place in reality, because the randomness is driven by the very complex
processes in this world, hence leaving so much room for flaws and new (maybe more beneficial
outcomes, in by -then-unknown ways). Randomness increasing a s a Pascal triangle, Equilibrium

Popina Sebastian Marius
Bucharest University, Behavioral Economics, 2nd year

would need to reduce the resources per object capable of using resources. Mathematically, driven
to the limit of time, resources per object would reach null values, hence death. As a forecast of our
current experience as hu mans, it is considered that even if we could define and forecast the
perfectly rational environment overall, the time to gather this knowledge and apply it would be
unreachable to start on Earth for us.
Let’s consider prices. They didn’t change according to equilibrium, but to decision makers who
take into account their benefits before the social benefits, or also how to benefit from the social –
benefits that one generates. People cooperate, but mostly contextually, benefits being considered
to be deserved by contribution. The flaws of this logic (charity, let’s say, in cases when the benefits
deduced from social benefits are not perceived) is an example of deduction, which is not at all
rational. Learning from past experience and forecasting can be optimize d by fastening the
communication and informational exchanges: networking. Since information has different levels
of security (public, private, etc.), networking can breach these borders. Even so, only some
characteristics of economical contexts can be pred icted, the number of possible outcomes being
physically impossible to calculate, as mentioned earlier.
There are few main types of businesses in this world:
– Micro -entrepreneurship: they claim that variations are caused by big changes bringing a
wide varie ty of new opportunities (technical development)
– Macro -entrepreneurship (neo -Keynesianism): variations are caused by imperfections, little
resource losses (time waste, etc.).
As a contrary, CE takes all those elements into consideration, but separately, as effect of economic
relationships and actions. Such system needs no automation, as the update will always go further
from the base layer to the top layer of economy, and this change is also fastened by networking,
as mentioned earlier. The place where ratio nality applies more and it is more feasible is the stocks,
which have many fluctuations. Innovation doesn’t directly impact stock prices, but the economical
interaction itself. It is continuous, an ongoing evolutionary process, an always growing field.
Wha tever the trees do, the forest will always grow wider, especially if the external factors are
favorable. This time, the external factors are mostly controllable and they are designed to bring
wealth.

Popina Sebastian Marius
Bucharest University, Behavioral Economics, 2nd year

What is the definition of ‘’fit’’? As in the case of bio logical evolution, the instinct is a key to
succeed, hence also the struggle for survival and the speculative abilities. Having a high survival
rate, the highest the chances to replicate ‘’fit’’ designs.
Game Theory has a high influence on evolution: we have a tendency to cooperate under the
conditional ‘’we’’, decision making processes deciding who is ‘’we’’, but we are also tempted to
cheat also from exemplified experiences from the past. Culture is the base of patterns, both for
good and bad ones. Doing what you see and returning that behavior, being it beneficial or not, is
reciprocity, and its accuracy is determined by the consistence of the culture. For instance, in a
corporation where trust and coope ration levels are very high and define the organizational culture,
the economic performance has a higher slope of growing. What is the reward of cooperation? As
information, as a resource, is granted access by having successful networking interactions, oth er
resources can be accessed by having a great business performance. But evolution is also about
change management. The next evolutionary step is adapting as an enhancement of forecasting and
planning functions: one must adapt its plans accor ding to the market and society. Hence the reasons
why many business plans don’t act according to their initial state: economies ’ development is not
at all polynomial. Change management teaches one how to isolate the epicenter of the change
(hence acting rational, not choosing any of the spaces opened in the mar ket), as a consequence of
the design of favoring only few changes at one time. Otherwise, the time to adapt would pass only
after the implementation of the next change(s).
As a somehow separate discussion, there are organizational sides that can be optimized, like
hierarchies. Strong hierarchical structures only ensure one kind of good organization, but not
success. But as a structure gets bigger, having more and more members, trust lowers itself because
the rep utation, like in a small community , lowers itself too, and one ’s opinion about another
becomes almost irrelevant , since it will be kept in an apparently closed circle. As a consequence,
plenty of meeting s take place, plenty of procedures are followed, and plenty of limi tations and
restrictions help in controlling the leaks in the organizational environment. Changes take place
also specifically , gene rally being implemented forcefully, then requiring adaptation within some
business rules. Since tru st is low, everyone will have questions related to what they deserve in
comparison to others. Leadership becomes harder, but if it is strategically planned to claim trust
by improvement and results, team work might also optimize .

Popina Sebastian Marius
Bucharest University, Behavioral Economics, 2nd year

Just like in current speculative selling strategies around the world, communicat ion works better if
the information is presented as sold for free rather than donated. Like trying to convince one of an
obvious reality in order to keep the focus on the main issues. Repeating the same information, by
human mistake or intention, might actually lead to better business solutions. Change management
is as important as communication since the balance in society is disturbed during a change and it
needs time to settle back. But if the timespan has delays, then other competitors will have mor e
time (as a resource) and will grow faster, lowering the chances of development of the delayed
business, which will keep track harder and harder of the updates. Information, again, should be
rather sold, convincing people that the change is needed, and th is might be the reality, but the
change itself is generally approached by placing more values than required on the negative effects
(marginal utility, on the opposite sign, is higher for losses than for gains). Hence the need of selling
informatio n: it is not about disturbing reality, but helping in the change process. P eople involved
might realize at least the need for the change rather than the outcomes, and they wil l also help in
the adapting process, because in this case one really either is a part of it, either against it. If one
doesn ’t follow the change, it lowers the a daptation level of the socie ty.
As a conclusion, rationality has never really been a solution to our questions about how to proceed
with decision making processes, because static rules cannot adapt (because they are constants) and
they can at most provide base for adaptive law s of order. If evolution wouldn ’t be involved,
economy would have remained stuck at one point, but us, humanly, took those principle s of
economy and adapted them according to the environment subjectively. Hence, having the purpose
of following patterns, we adapt even without wanting rationally, placing fit designs without even
designing intentionally: evolution.